GST tax evasion : Menace of Fake Invoicing prosecuted & penalised

Budget 2020 has conveyed a momentous move to curb the fraudulent activities carried out by individuals indulged in making fake GST invoices in order to claim wrong input tax credit by GST taxpayers.

During the past it has been observed that widespread practise is being followed wherein GST taxpayers are obtaining fake invoices in order to reduce their output GST liability by claiming credit on the basis of such fake GST invoices.

What is fake invoice and who is issuing it

It is seen that few racket of individuals are issuing invoices charging GST on it with no GST number mentioned on same resulting in fake GST invoice.

Further, another case seen is that individuals are not registered under GST but uses a fake GSTIN number in the invoice and charge GST and the tax is not deposited with the Government. A GSTIN is a 15 digit unique code wherein first two digit represent state code, next PAN no and last three digits represents entity number in a state, default alphabet and sum digit. Any change in the structure of this number will tantamount to fake GSTIN number and consequently a fake invoice.

It has come to the notice that such fake invoices are astonishingly being issued by racket of individuals who are uneducated and not carrying any business/ profession such as rickshaw pullers, daily wagers, etc.

The Government’s intention has always been to make such fraudulent activities penalised and punishable and accordingly they have been amending the law from time to time.

Present Law

Section 122 of the Central Goods and Service Tax (CGST) Act, 2017 deals with penalty for certain offences while Section 132 of the act (ibid) deals with with punishment for various offences under GST.

What are the offences covered

• supplies any goods/ services without issue of any invoice in violation of GST provisions
• issues any invoice/ bill without supply of goods/ services in violation of the GST provisions
• avails ITC using above invoice
• collect tax and fail to pay same to GST Department
• evades tax, fraudulently avails input tax credit, refund
• falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information with an intention to evade payment of tax
• obstructs or prevents any officer in the discharge of his duties
• Transporting, removing, depositing, keeping, concealing, supplying, or purchasing or deals with any goods which are liable to confiscation
• Deals with any supply of services which is in contravention of any provisions of GST Act
• tampers with or destroys any material evidence or documents
• fails to supply any information which he is required to supply or supplies false information
• attempts to commit or abets the commission of any of the offences mentioned above

What is the law on such offences

Currently the above offences are punishable with imprisonment along with fine basis the nature and severity of such offence.

 

Offence	Punishable with
Tax evasion > Rs. 500 lakhs	Upto 5 year imprisonment with fine
Rs. 500 lakhs < Tax evasion > Rs. 200 lakhs	Upto 3 year imprisonment with fine
Rs. 200 lakhs < Tax evasion > Rs. 100 lakhs	Upto 1 year imprisonment with fine
commit or abets the commission of any of the offences mentioned above	Upto 6 months or with fine or with both.

 

*Tax evasion = Amount of tax evaded/ amount of input tax credit wrongly availed or utilised/ amount of refund wrongly taken

       Further, penalty is levied minimum of INR 10,000/- to amount equivalent of tax evaded.

Despite the lawmakers endeavour to cover each and every fraudulent transaction resulting in GST evasion as non-bailable and cognizable offence, it is has been seen that different methods have been adopted to avoid tax payment via issuance of fake GST invoices.

Such fraudulent arrangements deserve to be dealt with harsher provisions under the Act and thus recently in Budget 2020 imperative amendments has been proposed w.e.f. April 01, 2020.

What is Proposed law on fake GST invoices

Imperative amendments has been brought w.e.f. April 01, 2020 making issuance of fake GST invoice as an offence. Further, prosecution and penalty shall be levied on any person on whose instance such transaction is conducted and who retains the benefit of such fraudulent transaction.

Amendment in penalty provision (Section 122)

It is proposed to provide that any person who retains the benefit of below transactions and at whose instance such transaction is conducted shall also be liable to pay by way of penalty a sum which is equal to the tax evaded or input tax credit availed of or passed on.

• supplies any goods/ services without issue of any invoice in violation of GST provisions
• issues any invoice/ bill without supply of goods/ services in violation of the GST provisions
• takes or utilises ITC without actual receipt of goods/ services
• takes or distribute wrong ITC

Thus, the beneficiary of above transactions at whose instance such transactions are conducted is liable for penalty w.e.f. April 01, 2020.

Amendment in prosecution provision (Section 132)

Currently, prosecution provisions are applicable to GST taxpayer. Now, w.e.f. April 01, 2020 said provisions shall also be applicable to any person who causes to commit and retain the benefits arising out of any of the fraudulent offences as mentioned under present law including the issue of fake GST invoices. Thus, the amendment has proposed

• to make the offence of fraudulent availment of input tax credit without invoice or bill cognizable and non-bailable.
• to make any person who retains the benefit of certain transactions and at whose instance such transactions are conducted liable for punishment.

The amendment in above provisions has covered all minds and hands behind such fraudulent transactions. Thus, not only the person who has evaded the tax on the basis of fraudulent offenses including fake GST invoice but also any others person who have assisted the tax invaders in such fraudulent transaction will not be spared and will be equally penalised and prosecuted.

Subsequent similar amendment has been proposed effective from April 01, 2020 under the Income Tax Act by way of insertion of Section 271AAD wherein penal action will be taken on the person maintaining books of account in case of false entry or omission of an entry relevant for computing total income. Further, penalty shall also be levied on any other person who causes the person required to maintain books of account to make or causes to make any false entry or omit or cause to omit any entry in books of account.

Conclusion

The intention of law makers is clear to completely eradicate manipulation of books/ documents and evasion of tax basis fraudulent activities. This intention is further supported by the lawmakers move of introduction of new legal framework for e-invoicing under GST and new GST returns to be implemented from April 01, 2020.